“Disagree and Commit”

Are you, like me, beginning to feel sorry for the traditional retail industry? Lately, the litany of bad-news stories has become relentless. (Yes, I just wrote about this from a different angle; today I have a different theme.)

Here in New York, rents along Fifth Avenue and in SoHo—grounds zero for high-end retailers—are softening, vacant storefronts are increasing, and of course, elsewhere, “zombie malls” seem on the verge of becoming the norm.

In the last six months, general merchandise stores have laid off nearly 90,000 workers, more than total employment in the US coal industry—and more than 10% of Americans work in retail.

Consumer confidence is high and unemployment is low, yet stores are being closed at a greater rate than during the great meltdown of 2008; this is clearly structural, not cyclical.

Now it begins to get pointed for us: According to a 2015 Bain study, the entire luxury retail-goods industry benefited from “relentless price increases over the past five to ten years,” noting that “one of the tricks to luxury is price discipline,” but that party has abruptly come to an end. Neiman Marcus is a case in point, where annual price hikes of 7—9% were the norm. Until 2015. Suddenly startups such as Matchesfashion, Bluefly, Farfetch, and others are undercutting them, and the impact has been vivid:

“Despite very modest law firm demand growth, revenue was up 3.7% at the nine-month point, driven largely by lawyer rate increases of 3.2%. Rate growth as the primary driver of revenue growth has been the norm now for several years.”

Hold that thought, but first let’s go back to retailing.

Why this is all happening to traditional retailers now is self-evident: The explosive growth of online in general and Amazon in particular.

But that’s not actually an explanation of why and how they’re growing, it’s merely a descriptive recap of what we can all see.

That’s a question I just got at our most recent all-hands meeting. I’ve been reminding people that it’s Day 1 for a couple of decades. I work in an Amazon building named Day 1, and when I moved buildings, I took the name with me. I spend time thinking about this topic.

“Day 2 is stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death. And that is why it is always Day 1.”

To be sure, this kind of decline would happen in extreme slow motion. An established company might harvest Day 2 for decades, but the final result would still come.

And to avoid Day 2 syndrome? Bezos notes that companies can choose their focus: On competitors, on products/services, on technology, on their business model, and more. But for Amazon he chooses the customer. And no, it’s not for the obvious reason, that they’re the ones paying your bills. It’s more subtle and much more powerful than that (emphasis mine):

There are many advantages to a customer-centric approach, but here’s the big one: customers are always beautifully, wonderfully dissatisfied, even when they report being happy and business is great. Even when they don’t yet know it, customers want something better, and your desire to delight customers will drive you to invent on their behalf. No customer ever asked Amazon to create the Prime membership program, but it sure turns out they wanted it.

He also mentions, as practices strictly to be avoided:

Letting the right process trump getting the result you want. If the process produces a bad result, time to change the process. Unless, of course, the process owns you and not the other way around. (You know the process is running things if people can excuse lousy outcomes with “We followed the right process” and you nod and let them get away with it.)

Short-changing powerful external trends or embracing them belatedly. For Amazon, the supremely important external trend these days is the rise of machine learning and AI.

And finally, slowing the velocity of decision-making to add incremental confidence or certainty.

The last one is the most important for us.

To accelerate the velocity of decision-making, Bezos has three recommendations. First, separate out decisions that can quickly be reversed—think of them as two-way swinging doors—and use an expedited, “lightweight” process to resolve them. After all, by hypothesis you can change your mind quickly and inexpensively if the results don’t begin to look like what you intended.

Second, “most decisions should probably be made with somewhere around 70% of the information you wish you had.” Waiting for 90% is too slow.

Finally, and most brilliantly:

Disagree and commit.

In other words, put conviction ahead of consensus. An example (Bezos can do it too; it’s not just for underlings):

We recently greenlit a particular Amazon Studios original. I told the team my view: debatable whether it would be interesting enough, complicated to produce, the business terms aren’t that good, and we have lots of other opportunities. They had a completely different opinion and wanted to go ahead. I wrote back right away with “I disagree and commit and hope it becomes the most watched thing we’ve ever made.” Consider how much slower this decision cycle would have been if the team had actually had to convince me rather than simply get my commitment.

Note what this example is not: it’s not me thinking to myself “well, these guys are wrong and missing the point, but this isn’t worth me chasing.” It’s a genuine disagreement of opinion, a candid expression of my view, a chance for the team to weigh my view, and a quick, sincere commitment to go their way.

“Very interesting,” you may be saying, but we know Amazon is winning on lots of fronts, so what’s the point?

The ascent and striking dominance of Amazon was hardly a foregone thing. Warp yourself back 20 years and think about Amazon vs. Walmart. Walmart had, ahem, an unrivalled geographic footprint, profound retail expertise, massive revenues and the largest customer base of any company in the country, unprecedented distribution/supply chain clout, operational systems tuned to Swiss-watch precision, essentially unfettered access to capital markets, and the list goes on and on.

By every rational metric and expectation, they should have won the online war, just as the luxury goods war should be a rout of all the rest by Neiman Marcus (junk-rated debt at severe risk of default), Saks Fifth Avenue (acquired in 2013 by Hudson’s Bay Company for $2.9 billion, which promptly took nearly $4-billion in cash out of Saks by way of a mortgage on its flagship NYC store), Ralph Lauren (new CEO, unceremoniously), Tiffany (ditto), etc.

Do you suppose “disagree and commit” is how Walmart makes decisions? I obviously don’t know, but I know which way the betting odds would align.

Now, do you still think near-total information and near-total consensus are the most effective ways to make decisions?

2 Comments

J. Bezos also has a few more things that should hit the radar screen for Big Law:

“Your margin is my opportunity.”
– Don’t fall in love with measurements that mean nothing on how you run your business.

“The balance of power is shifting toward consumers and away from companies… The right way to respond to this if you are a company is to put the vast majority of your energy, attention and dollars into building a great product or service and put a smaller amount into shouting about it, marketing it.”
– Sounds like GC’s and other legal clients these days.

“If you double the number of experiments you do per year you’re going to double your inventiveness.”
-Even the failures, e.g. Amazon Fire Phone, lead to insight were the stepping stone to future success, e.g. Alexa.

“If you decide that you’re going to do only the things you know are going to work, you’re going to leave a lot of opportunity on the table.”
– Compliments your statement of 70% information vs. 90% information decision making.

“The great thing about fact-based decisions is that they overrule the hierarchy.”
– Many firms still defer to the senior leadership’s hierarchy. Sometimes they do so without knowing the facts until it is too late. (e.g. Dewey)